COMPETITION AND INFRASTRUCTURE BOTTLENECKS

This Chapter focuses on two fundamental issues regarding the availability of innovative and competitive broadband access services and applications. These are policy making and regulation aimed at encouraging competition among players and good practices in this area aimed at addressing key bottlenecks such as access to essential facilities to deploy broadband services. Special attention is paid to dominance issues and regulation at the wholesale level, which are key issues to be addressed by regulators in the LAC area.

1. Experience in OECD countries demonstrates that competition is key to spurring rapid broadband development. Broadband competition stimulates network rollout, higher speeds and helps lower prices, which in turn, attracts users. Another very relevant key issue, affecting both competition and investment on broadband access, is removing bottlenecks as access to existing passive infrastructure which act as a high barrier for broadband deployment by both existing operators and new entrants.

2. Broadband will only develop when markets for fixed and mobile communication networks and services are competitive. Many LAC countries lag in the development of fixed networks and still have powerful dominant operators enjoying very large market shares and weak institutional frameworks slowing the development of competition and creating a barrier to the expansion of services. These weaknesses make it challenging to meet broadband policy objectives through market forces. Encouraging competition and network deployment of mobile broadband access is especially important, as it may be the most efficient and economical way to deliver services and competitive choice for consumers in areas where high speed fixed networks are not well developed.

3. This chapter presents a set of policy and regulatory instruments, as part of the OECD/IDB broadband toolkit, to advance competition in communication networks and services in LAC countries. In addition to interconnection issues, which have already received a great deal of attention in the region, a full set of tools is proposed to advance competition in fixed and mobile markets. Moreover, removing potential bottlenecks, such as restrictive rights of way, limitations of access to poles, ducts and so forth, is of extreme importance to facilitate network deployment and foster investment by new entrants.

4. Facilitating and encouraging passive infrastructure sharing is also critical to foster the deployment of both mobile and fixed networks. This can assist in addressing outstanding challenges to foster deployment of fibre access and backhaul infrastructure for mobile networks.

Key policy objectives for the LAC Region

Key policy objectives for the LAC Region

5. The main high-level policy objective for opening broadband markets in the LAC region is to promote competition along the entire value chain for all actors (including new entrants and alternative providers). This general policy objective can be met via some specific policy objectives such as:

• Establishing an investment-friendly environment facilitating both national and international investment, as well as reasonable regulatory certainty. Lowering, and where appropriate eliminating, administrative entry barriers, simplifying procedures, time and costs for obtaining licenses to deploy networks, as well as easy, quick and efficient access to scarce resources such as numbering and spectrum.

• Facilitating efficient access to rights of way and passive infrastructure deployed by other actors, in particular market players with a dominant position.

• Ensuring effective and efficient interconnection among the different actors.

• Facilitating demand side competition by reducing switching time and costs, promoting effective and rapid number portability in fixed and mobile markets and monitoring and controlling retention clauses and penalties for switching operators.

• Monitoring and assessing dominance in the different markets related to both mobile and fixed broadband access, taking corrective measures against any dominant position in the geographical areas lacking competition.

• Ensuring access to infrastructure controlled by dominant operators which is difficult to replicate (usually qualified as essential facilities), as well as encouraging network sharing among all market players to reduce investment and accelerate the rollout of broadband.

6. Fulfilment of these policy objectives facilitates competition and investment by operators, maximising coverage of broadband services, reducing prices for the final consumer and encouraging innovation in broadband services.

Tools for measurement and analysis in the LAC region

Tools for measurement and analysis in the LAC region

7. The collection and analysis of data are crucial to set and monitor implementation of policy objectives, as well as adapting specific policy or regulatory measures, as necessary, and benchmarking with other countries, as addressed in Chapter 1 on regulatory frameworks and digital strategies. In order to inform policies aimed to promote competition, the following assessments are advised:

• Collecting data on investment by market players. Such data, provided regularly by operators, should, when possible, show the type of investment undertaken by each competitor related to revenues and customers. Time series and comparisons of the volume of investments with similar countries are relevant to detect trends and potential problems.

• To monitor competition, the typical indicators that should be produced and updated regularly are: number of operators active in each market, revenues for each operator, market shares and its evolution over time (revenues/subscriptions), concentration indexes (such as the Herfindahl-Hirschman Index, HHI), evolution of prices, evolution of number portability, evolution of broadband speeds (announced and measures on real speeds). As covered later in this chapter, these indicators are needed to perform market analysis, which is the basis for taking regulatory reform measures aimed at encouraging competition.

• Infrastructure bottlenecks and issues related with difficulties to access to relevant inputs to provide services should also be assessed regularly. Key Performance Indicators (KPIs) should be defined based on data about infrastructure and other resources availability. For each of the potential bottlenecks one or several KPIs should be defined. Some key performance indicators can be provided that could be used to monitor fulfilment of policy objectives, as well as some references to existing reports from regulatory authorities that could be used to identify KPIs and data collected on infrastructure bottlenecks and access to relevant inputs (Box 1).

• With respect to rights of way, it is difficult to define meaningful KPIs, as time frames and procedures may vary for each different right of way (i.e. ducts, poles, base station sites and so forth). In addition, access to rights of way may be dependent in some cases on municipalities rather than a dominant operator. Nevertheless, it is important that the national regulatory authority has powers to facilitate access to rights of way and to monitor developments in this area given, in particular that administrative authority over rights of way may be distributed among many different levels of administration in a country. Development and publication of infrastructure maps, covered later in this chapter, is key to inform operators about availability of passive infrastructure to be used in new network deployments. The aim of the regulatory authority is to lower barriers for market players to acquire new rights of way, access existing rights of way and minimise the time required to obtain approvals (e.g. access ducts, install poles, construct towers, place antennas and so forth), applying simple and quick procedures in the whole country.

Overview of the situation in the LAC region

Overview of the situation in the LAC region

8. The situation in the LAC region regarding competition and infrastructure bottlenecks shows a large variation among countries. Even within each country, there is a wide variation among different geographical areas, as occurs in any other region of the world.

9. In general, in recent years there has been an increase in competition in a number of countries especially in mobile markets where new entrants are competing with incumbents. However, in comparison with most OECD countries, there is still room for more competition both in fixed and mobile broadband markets. In many of the LAC countries market shares are highly concentrated. Most new entrants in these markets also face infrastructure bottlenecks such as access to rights of way, passive infrastructure and international gateways.

10. The reasons for this lack of competition, especially in large urban areas where there is room for several operators competing on prices and services, are mainly based on the following issues:

• In a number of countries the process for granting licences is cumbersome, contracted and costly, even when there is no associated spectrum involved. In general, except for some countries that have short term plans to adapt the licensing regime, notification-based market entry models have not been adopted.

• Although most countries in the region do not have foreign investment restrictions in the telecommunication sector, there are a few exceptions where limitations on the share of foreign ownership are in place, reducing incentives for external investments. There are still a few countries where new entrants are at a disadvantage compared to dominant publicly-owned operators not subject to regulatory obligations to provide access to essential facilities. As a result, new entrants have difficulty in expanding their networks and obtaining customers.

• Termination rates for both fixed and mobile voice, although they have been reduced over the last few years, are still very high in many LAC countries compared to OECD non-LAC countries. Termination rates are still not regulated in many countries and the drivers used to set termination rates are in many cases unclear and render prices much higher than costs. This situation implies higher prices for customers and a relevant barrier for competition for new entrants that have to face high costs to deliver calls to dominant operators. It also raises the issue of on-net/off-net retail price differentiation that hampers competition for new entrants.

• A minority of LAC countries still focus on retail price regulation (typically price caps for fixed and even mobile voice) with the aim of protecting consumers. At the same time, there is an insufficient focus on wholesale regulation focused on facilitating access to essential facilities for new entrants. As addressed in the section on good practices, if competition is ensured through applying wholesale regulation, retail regulation may be reduced to the minimum or even not applicable, as prices will be disciplined by market forces and retail regulation may interfere with innovation and competition.

• Except for a few exceptions, in the LAC region the concept of “dominance” is considered in the regulatory framework, as well as the application of regulatory measures to solve competition issues derived from dominant market positions. However, in a relevant number of cases dominance is not analysed regularly, dominant operators are not regulated, or the regulation imposed is ineffective, due to judicial litigation by the dominant operator, lack of enforcement, or lack/inadequacy of reference offers.

• An important regulatory tool that has been used in a large number of OECD countries in order to ensure effective market access by new entrants and reduce the dominant position of incumbent fixed telecommunication network operators is the implementation of local loop unbundling (LLU). Unbundling and bitstream access have helped provide a foothold to new entrants and, in particular, to Internet Service Providers (ISPs) in the broadband market. In the majority of the LAC countries LLU and bitstream access is not imposed on dominant operators, or when imposed, has not been effectively used by alternative operators, due to high prices, lack of enforcement, and/or non-adequate reference offers. This has not allowed for competition for fixed broadband from new entrants in those geographical areas, such as in large cities, where LLU can be a tool to encourage competition. As developed further in the section on good practices, LLU is one of the regulatory options that can be applied to encourage competition for fixed broadband particularly in the absence of alternative infrastructure competitors (e.g. cable television broadband operators) exerting enough competitive pressure, but mobile broadband extension and competition is also important, and regulatory measures in this area must also be addressed. In the mobile sector some countries have imposed national roaming obligations to allow for the phased deployment of infrastructure by new entrants to help overcome the market advantage of incumbent mobile operators. This measure has been helpful in creating mobile competition but often needs to be supplemented by wholesale pricing agreements that allow fair access to the incumbent’s network by new entrants. Allowing market entry by mobile virtual network operators (MVNOs) is also important to create competitive conditions in the mobile market. Again, a key requirement for the success of MVNOs is the wholesale price for access to the networks of mobile network operators. Just a few of the LAC countries have initiated regulation permitting MVNO market access. There are, however, novel initiatives such as the “Red Compartida” (shared network) proposal under discussion in Mexico, where a new network infrastructure is to be deployed using a public-private partnership model with the aim of providing network access to MVNOs as well as to MNOs and even fixed network operators, in rural areas (see more detail of this project in Box 2).

• Ensuring access to rights of way for ducts, poles and base stations is a key regulatory requirement in the LAC region and an essential part of the broadband toolkit. In many cases there are no national rules or regulation which grant right of way access and municipalities have a large margin of discretion to impose very high fees to access rights of way, delay or even forbid deployments and to impose unreasonable conditions. This is an issue of concern for operators and discourages investments. As discussed in the next section, there are relevant experiences in the LAC region as well as in OECD countries outside the region of good practices aimed at reducing barriers to rights of way access that can be used to improve market access and facilitate passive infrastructure deployment.

• Infrastructure sharing of fixed networks, apart from wholesale supply obligations for dominant operators, is not developed sufficiently in the LAC whereas infrastructure sharing in the mobile market is relatively more developed. In some cases sharing of mobile infrastructure has resulted from regulation, as is the case for Chile. In some LAC countries public passive infrastructure has been made available to new entrants, for example in Peru and Brazil, where the passive infrastructure from the public electricity utility is shared by law with telecommunication operators .

• Internet exchange points (IXPs) are widely available in the region but unevenly distributed, with the highest number of well-functioning exchanges in the South American sub-region followed by the Central American and Caribbean sub-regions. Brazil has been a leader in increasing the number of IXPs in its territory from a single one in 2004 to 23 by 2013. However, there are still a number of countries without such infrastructure. This results in higher costs and lower quality of service for managing internet traffic, which in many cases could be exchanged at a national level, especially for alternative operators. Additionally, lack of effective IXPs is also a disincentive for the development of local data centers that should also be fostered in the region, and will be the subject of a forthcoming study to be undertaken by the IDB for the LAC region.

• International bandwidth high costs and CDNs deployment is another issue that needs to be addressed to lower retail prices and increase competition and quality of service in LAC Region. These issues are address in Chapter 7 on Regional Integration.

Good practices for the LAC Region

Authorisation/licensing models

Authorisation/licensing models

11. In general, the authorisation system for operators should be as simple, prompt and inexpensive as possible. For those services not using scarce resources, such as spectrum that cannot be allocated to a large number of players, a notification-based system can be used. Such ease of market entry, as the experience in most OECD countries shows, facilitates competition and can also be adopted in the LAC region.

12. An example of an efficient market entry regime is the case of Colombia. Following the approval of the ICT Law in 2009, market entry requirements for telecommunication operators, other than those using spectrum, are limited to a registration process. The process is fairly rapid and not burdensome. The provision of a communication service that uses radiofrequency spectrum requires a prior authorisation or license from the Ministry. The ICT Registry, under the responsibility of the Ministry, can be modified and updated. Moreover, when an operator provides a new communications service, or stops supplying one, it must inform the ICT Registry of such changes. New entrants are required to provide information on the legal and natural persons undertaking the registration, a description of the network and services to be provided and the use of scarce resources, such as spectrum.

13. The registration-based authorisation process is usually not linked or specific to any service (same registration requirements for all services) facilitating entry for convergent operators. In general, registration should not have associated high fees (it can be without charge or entail a low payment to cover expenses for registration). The registration process can be very simple, for example notification using a predefined format and, as in many OECD countries, authorisation is granted if there is no feedback from the regulator within a short period (e.g. two weeks or a month). The registration process is also used to collect fees, send notifications to operators and for other regulatory purposes, such as data collection.

Foreign ownership restrictions

Foreign ownership restrictions

17. In general, foreign ownership restrictions in the telecommunication sector have been lifted in most of the region although some countries limit the percentage of foreign participation in telecommunication markets. However, in the broadcasting sector foreign ownership restrictions are widely used.

18. Telecommunication markets have very large associated infrastructure costs requiring a long recovery period. This means that market players with large funds to invest and having easy access to financial markets are the ones better placed to invest relevant sums, and most of these actors are transnational and not located in the country where the investment will take place. This situation is especially challenging for small countries, but it also applies for large countries, and for example, in most of OECD countries where a number of operators are not national, but transnational actors.

Administration of scarce resources (spectrum, numbering)

Administration of scarce resources (spectrum, numbering)

19. The availability of spectrum is a key issue to foster competition in mobile markets and, as emphasised in Chapter 2 on spectrum policy, the development of broadband in the LAC region will depend on more spectrum being made available for mobile broadband services. This is also a relevant issue to accelerate the digital switchover for television services, in order to allow the use of the digital dividend to expand the use of mobile broadband services. Furthermore, authorities should ensure that this spectrum is fully available in order to ensure that availability of future mobile broadband services will not be delayed.

20. Well-defined policies and procedures for number allocation and management is also a relevant issue. Periodical reviews of the numbering plans for different services must be carried out, with the aim to anticipate future needs, allowing for the provision of new emerging services needing public numbering (for example for M2M services discussed in Chapter 7). It is important to set well-defined procedures allowing market players to request numbers and to ensure that they are assigned rapidly by the relevant authority, and verifying that there is an efficient use of numbers. One-off fees for number assignment should in general be oriented to cover the cost of numbering management, and any recurrent fee should be aimed to foster efficient management by the operator. High fees should be avoided since they may deter or disincentives growth of services and/or entry by new actors.

Interconnection for fixed and mobile voice services

Interconnection for fixed and mobile voice services

21. Providing telecommunication services requires interconnection among operators since customers of each operator need to connect to customers of other operators. For this reason, ensuring that operators interconnect in an effective way is a key requirement of regulatory policy. All of the countries in the LAC region have established obligations to interconnect. However, as there are no incentives for operators with large market shares to facilitate interconnection, regulatory authorities should take action to ensure that interconnection takes place promptly and effectively. The following good practices help to ensure that interconnection is not a barrier for competition:

• Requiring the publication of a reference offer by dominant operators where all the technical issues, prices for interconnection and other ancillary services, procedures for requesting interconnection, time for provision, procedures for incident management, for quality of services, penalties for not meeting published offers and any other relevant issues should be included. The regulator must review the reference offer and take into account inputs from all operators (both dominant operators and new entrants) to ensure its adequacy. Reference offers should be issued and reviewed regularly to amend any problems and to adapt them to changing costs and technological conditions.

• Ensure that prices for interconnection are cost-oriented. In many cases, and especially when there is an asymmetric situation in terms of market shares, there is a clear incentive for dominant carriers to increase costs for rivals by setting high termination rates. This can result in significant costs for new entrants, in particular as interconnection is crucial in the early stages as they build up their customer base. Although in certain cases negotiation among operators may lead to low prices for termination, there is a need to monitor and, in most cases, to directly regulate prices for interconnection. Regulated prices for termination rates can be based on costs in order to facilitate low rates, ensuring at the same time that the cost for providing the termination service is covered.

• Interconnection also will remain important for all-IP networks which are replacing the public switched telecommunication network (PSTN) for fixed services, including voice services. 4G Mobile Networks are also evolving to using IP for voice. In this context reference offers for interconnection should facilitate a smooth transition to managed VoIP interconnection among operators, and, when technically feasible, ensuring the implementation of IP interconnection protocols and procedures in order to improve the efficiency and effectiveness of interconnection among operators that are using IP networks for managing voice services.

Interconnection for Internet services

Interconnection for Internet services

22. The provision of Internet services also rely on interconnection with other operators. Many, if not most, of the content and applications accessed by consumers are hosted by a different operator than the one providing Internet access to the customer. However, there are important differences between voice and Internet services justifying a different regulatory treatment:

• A much larger proportion of the Internet traffic consists of connection to resources provided by content and application providers in foreign countries. Although more and more of this traffic is being managed by Content Distribution Networks (CDNs) hosting content at a national level, still a significant part of the traffic is international and the interconnection model is different and more complex than in the case of voice.

• Internet interconnection has largely been based on peering (direct traffic exchange between two operators) using bill & keep models (no payments made among operators provided that traffic is in general symmetric). The Internet interconnection model is, however, evolving due to the large growth of internet traffic for access to audio-visual content. New actors such as CDNs have appeared and access operators would like to charge large content providers to send content to end consumers.

23. Prices for Internet interconnection have not been typically regulated and the market has provided an excellent outcome for Internet interconnection in most countries with high penetration and use of Internet services. There is, therefore, no need to apply in the LAC region similar models such as those applied for voice (regulation of termination prices and publication of reference offers). That does not mean that regulators should not pay attention to Internet interconnection. In fact, prices for Internet interconnection are higher in the LAC region than in other areas of the world and active intervention is needed in some areas to ensure sufficient competition. Recommended good practices include:

• Monitoring by regulators of prices for interconnection and evolution of interconnection models. Collecting and processing data from relevant actors in order to take informed decisions and take action when needed. The evolution of the interconnection models, driven by the increase use of Internet to access content may lead to challenges in the future, indicating it is important to detect in advance trends and potential bottlenecks.

• Promote the deployment of Internet Exchange Points (IXPs). Internet exchange points (IXPs) are platforms enabling new market entrants to compete in the Internet service market in a very efficient and cost-effective way. By using IXPs to interconnect with other networks, service providers can reduce their operational costs becoming more competitive. A better quality of service is achieved as networks can generally interconnect directly with more efficiency without a third-party network connection. In some contexts and depending on the concrete infrastructure bottlenecks, IXPs can increase the available bandwidth to the service providers which, in turn, can offer better connectivity packages to their customers. A more detailed discussion on the role and benefits of Internet exchange points and local data centres, as well as best practice is discussed in Chapter 7 (Regional and International Integration).

• Internet openness, addressed in Chapter 6 on convergence, is a very relevant issue that may have implications for interconnection among players. Regulatory initiatives in this area are focused on retail service provided to customers and in general there is no need to set any specific regulation for Internet interconnection, but disputes may occur among operators, requiring the intervention of the regulatory authority to ensure that interconnection agreements are consistent with regulation of Internet openness.

• Foster the development of backbone infrastructure and gateways. Lack of backbone infrastructures and alternatives for connecting to foreign networks is an issue in a number of LAC countries, leading to higher costs for Internet interconnection. Chapter 7 on regional and international integration addresses the situation of the LAC region and good practices in this area.

Increasing mobile broadband competition by MVNOs entry

Increasing mobile broadband competition by MVNOs entry

24. Mobile providers play a key role in the provision of mobile broadband access in particular in most of the LAC countries where fixed networks have limited geographic coverage. Taking into account trends in the reduction of prices for mobile terminals, technological evolution and new spectrum made available for mobile broadband, its role is likely to increase in the next few years. For this reason, encouraging competition in this market and facilitating entry of new mobile operators is essential.

25. As spectrum is a scarce resource and given the high sunk costs in deploying mobile networks, in practical terms, the market for mobile network operators with a national footprint is limited to a small set of operators, typically from three to five. Taking into account this limitation, on the potential number of Mobile Network Operators (MNOs) able to compete for mobile services, it is important to facilitate competition from other mobile providers using mobile wholesale access from MNOs. These Mobile Virtual Network Operators (MVNOs) do not have their own mobile access infrastructure, as they use the mobile access network deployed by MNOs. Depending on the availability of their own core network infrastructure and numbering, MVNOs can be classified in several different categories, ranging from full MVNOs to resellers whose business model is based on commercialising services completely supported by MNOs.

26. MVNOs account for a small market share in many OECD countries, including Chile and Mexico, and are also present in some other LAC area countries such as Argentina or Colombia. Although the role played by MVNOs in competition is not as important as that of new MNOs entering into a market, MVNOs may increase competitive pressure on MNOs, and provide tailored offers for specific niche markets, covering retail segments not addressed by MNOs.

27. A first set of good practices should ensure that there are no regulatory barriers impeding MVNO entry, specifically:

• Specific numbering allocation for MVNO use, including a simple and prompt procedure to get blocks of numbers assigned.

• Ensure that MNOs do not set unreasonable technical or pricing conditions or establish unfair limitations disrupting the business model for the MVNOs. In principle, there is no need for ex-ante regulation if MNOs are willing to provide wholesale services to MVNOs, but if potential problems are detected, at least in a first phase of MVNO introduction, it is recommended to maintain regular meetings with both MNOs and MVNOs and, if needed, to set specific regulations aimed to avoid obstacles to market entry by MVNOs.

• In general, laws, decrees and regulations should be adapted to include MVNOs. They must be subject to number portability requirements and other obligations aimed at protecting users. In the case of resellers, portability obligations are usually the responsibility of the hosting MNO.

28. MVNOs use wholesale access from MNOs to provide their services. This means that they must have an agreement and interconnection with at least one MNO to use their network. Experience shows that in many countries these agreements take place without the need to impose regulatory obligations on MNOs. However, often where there are few MNOs with similar market shares and incentives to tacitly collude on deterring MVNOs entry, MVNOs may not be able to reach an agreement or wholesale prices are too high to allow for a sustainable business model to compete with MNOs. In such situations the national regulatory authorities could:

• Undertake an official enquiry on the reasons for lack of agreement by obtaining data from MNOs and MVNOs and, if necessary, impose regulation of wholesale access for MNOs. The obligation to provide wholesale access could be imposed on all MNOs or those having a dominant position. In certain cases a credible threat of regulation is sufficient to enable MVNOs to obtain wholesale access at reasonable terms.

• Licenses for new MNOs or new bands of the spectrum may also include clauses aimed to ensure provision of wholesale access for MVNOs.

29. In considering mergers and/or acquisitions involving two MNOs, if considered necessary, obligations for wholesale access for MVNOs can be included as part of the requirement to authorise mergers/acquisitions after a careful analysis on expected effects on competition. An interesting new initiative in the LAC area is Mexico’s “Red Compartida” (“shared network”), promoted by the Secretary of Communications and Transportation (SCT) (Box 2). This mobile network is aimed at supporting any MVNO as well as MNOs and fixed operators, particularly to improve coverage in rural areas, by acting as a neutral wholesale platform. As the “Red Compartida” had not commenced at the time of writing, it was too early to assess outcomes for competition in respect to MVNOs.

30. In summary, critical success factors that must be taken into account to foster competition from MVNOs are the following:

• Ensure that the regulatory framework allows for simple and prompt authorisations for MVNOs, addressing specifically the issue of number allocation for these actors, and that rights and obligations for mobile providers also apply to them.

• Monitor the wholesale market for the use of MNOs’ mobile access infrastructure by MVNOs, and maintain regular contacts with both MVNOs and MNOs, in order to detect refusals to provide wholesale access, or any other barrier imposed by MNOs.

• When such barriers are imposed by MNOs or refusals are detected, regulatory action may be needed to ensure the development of MVNOs. This may comprise imposing obligations to provide wholesale access, setting obligations to define a reference offer for MNOs, or even regulating prices when needed.

• An additional mechanism to foster MVNO development may be to include clauses aimed at ensuring provision of wholesale access for MVNOs when providing new MNOs licenses, or when clearing mergers among MNOs.

National Roaming Agreements

National Roaming Agreements

31. National roaming agreements allow for full coverage at a national level for those operators with a more limited footprint. It takes a substantial amount of time for any new entrant to establish national coverage. With this in mind, in the interim, it makes sense to utilise a network from another operator in areas where the new entrant has not yet deployed their network. Ensuring national roaming agreements by means of specific regulation can assist new entrants deploy their networks faster and compete against established players. As the costs of deploying mobile infrastructure are in general substantially lower than those for fixed access networks, it is advisable to establish sunset clauses to ensure such national roaming obligations only remain in force for reasonable period (typically four to six years) to encourage investment from new entrants to deploy their own infrastructure.

32. National roaming is also relevant when licences for mobile services are provided on a regional basis. In this case, national roaming agreements allow services to be provided at a national level for regional operators once they have entered into a national agreement with other MNOs. National roaming agreements may also be useful in providing service in rural areas where an MNO believes that there is not a business case for deployment.

33. National roaming agreements are in many cases a natural outcome of the market and policy makers should ensure that there are no legal barriers to prevent such agreements (Box 3). In specific cases, especially in large countries where nation-wide network deployment can take a long time for new entrants, it is necessary to impose obligations on the dominant operator to provide national roaming for new entrants at a reasonable price in specific areas. Such obligations can be limited in duration, providing an incentive for the new entrant to extend their infrastructure. National roaming can also be set as a condition for spectrum licenses, as analysed in the next chapter.

Emerging services

Emerging services

34. The ICT sector has been one of the most innovative areas in recent years with many new services and technologies emerging, increasing consumer welfare and reducing the cost of providing better services. It is very important to ensure that an adequate framework exists for innovation and experimentation with new services. ICT policies, in general, and broadband services in particular must ensure that there are no regulatory barriers for new emerging services, establishing an innovation-friendly market open to new technological advances and service experimentation.

35. In this context, regulatory authorities should also as a general rule refrain from regulating emerging services too early except where justified as, for example, for consumer protection, national security or other specific issues. When new products or services are launched, it is often unclear what the barriers to competition will be so that it is advisable to let the market reach a more stable state before imposing obligations aimed at increasing competition. This will also help to avoid picking winners or restricting technological developments. That being said, authorities should monitor emerging markets to take action when and if required.

Number portability

Number portability

36. Number portability is one of the key tools for competition for fixed and mobile services. A prompt, effective and simple number portability process allows consumers to switch from one operator to another, encouraging competition. When no number portability process is available or the process is slow, cumbersome or fails in a relevant number of cases, customers refrain from switching operator, making other pro-competitive measures ineffective.

37. Although the use of broadband services does not entail the use of fixed or mobile numbering, broadband services are often contracted bundled with fixed and/or mobile voice services, meaning that number portability is also relevant in the context of creating competition for broadband services.
38. The experience and tools in implementing number portability have advanced during the last ten years. As an example, in many OECD countries porting numbers can take less than a day. In many of these countries number portability does not incur costs for customers. The main success factors for number portability are shown in Box 4.

Customer retention and SIM locks

Customer retention and SIM locks

39. Some commercial strategies, from mobile and fixed operators, are based on less expensive up front offers for a service or a bundle of services and/or handheld subsidies locking in customers by preventing them from switching provider for a fixed duration. In these cases users can sometimes face high penalties if they would like to switch providers before the end of this period. Although bundling of services and handheld subsidies are not per se poor outcomes for some customers, long customer retention practice, which often range from 24 to 36 months, can be harmful for competition in the short term.

40. Good regulatory practice in this area can include:

• Reducing the time that customers are locked into a contract for services and ensuring that once the initial contract is over that there is no further lock-in period allowing customers to switch provider whenever they wish to do so. Any penalties imposed on customers who change provider during the lock-in period should reflect the time left in the contract period.

• Where handheld subsidies are provided, the price for the terminal should be transparent on the bill and customers should have the choice, during the contract period, to purchase the terminal outright.

41. Locking of SIM cards is another practice used by mobile operators subsidising terminals. When SIM lock is in use, the terminal can only be used for the operator providing the subsidy, and consumers cannot use it to access service from another operator. To foster competition it is important that regulations require an obligation to provide SIM unlock codes when requested by the customer, once the contract is finished, or a reasonable period allowing for cost recovery for the operator has passed. Unlocked handsets are also a means by which users can select another operator when roaming in another country such as through purchasing a local SIM card. In the section about consumer protection (Chapter 12), issues related to these issues will be also addressed.

In-building wiring

In-building wiring

42. Deployment of broadband services in multi-dwelling buildings is usually undertaken by providing ducts inside the building to access each home or directly deploying cable on the façade of the building. This is usually done by the operator deploying the access infrastructure, although there can be regulations in force to include the corresponding passive infrastructure in new dwellings. The inability of new entrants to access in-building wiring can be a barrier to competition in the broadband market. Where buildings are already wired it is often difficult for a new entrant to install a competing wire either because of opposition by the homeowners’ association or because of engineering difficulties.

43. In order to foster infrastructure-based competition and reducing high market entry costs for new entrants, facilitating broadband availability and minimising civil works in buildings, regulatory authorities could:

• Impose the obligation for the building developers to deploy vertical wiring passive infrastructure in new buildings, setting rules on size for ducts to allow for the deployment of networks from several operators and using different technologies (e.g. fibre, copper), as well as providing chambers for operators’ connection to the in-building wiring (Box 5).

• Regulators should consider promoting in-building infrastructure sharing, namely for fibre cabling for individual apartments, and avoid exclusivity agreements. In this context, some European Union countries have imposed symmetrical obligations for the party deploying in-house wiring based on national law, namely Spain, Portugal and France (BEREC, 2011b). In Finland all in-house wiring belongs to the house owners and is therefore not included in the wholesale market definition. Such an arrangement also takes place in Sweden and Korea where, in addition, a very effective framework has been developed for labelling new buildings depending on their fibre connectivity. This framework, in Korea, has played a major role in transitioning to “fibre-ready” multi-dwelling buildings (Box 6). In the LAC region, promoting and regulating in-building infrastructure should focus mainly in urban areas with high rise buildings. In smaller villages and suburban areas, the emphasis of regulatory action should be put on simplifying management of rights of way by municipalities.

• A summary of some applications of these practices in selected countries can be provided (Box 6).

Rights of way for passive infrastructure deployment

Rights of way for passive infrastructure deployment

44. Passive infrastructure accounts for a large part of the cost of building telecommunication networks and represents a very high part of the sunk costs for network deployments. For example, civil works (ducts, poles and so forth) account for a 68% of the total of the first year costs for deploying a new fibre network(OECD 2008).

45. Passive infrastructure is not only expensive, but also takes a long time to deploy, constituting a clear entry barrier for infrastructure-based competition. This issue is especially relevant for new entrants, which contrary to the case of incumbent operators, do not own a pre-existing access network inherited from the monopoly era. Due to this reason, passive infrastructure deployment and sharing should be in general facilitated and encouraged by policy makers and regulators, provided that lowering costs via infrastructure sharing do not raise concerns on reduction of competition.

46. The key policy area to be addressed in facilitating passive infrastructure is the regulation of rights of way. Absent any national or regional regulation on rights of way, local administrations (municipalities) are the relevant administrative bodies in charge of authorisation/denial or imposing conditions (such as fees or dates to get permission) for carrying out civil works in a public space.

47. The lack of harmonised procedures, rights and duties at a national level may effect very negatively on plans for deployment not only of fixed, but also on mobile networks. Operators in these cases face a complex situation where conditions, time and costs for deployment are different in each municipality, raising costs for deployment in a non-predictable way, and adding uncertainty on the amount of time required to start deploying. It may also be the case that national, regional and local regulations of right of ways overlap, rising disputes among administrations and adding judicial burden for operators, leading to additional costs and delays for deployment.

48. For these reasons, it is important for national authorities to:

• Enact national harmonised administrative procedures for access to rights of way, ensuring consistency and predictability in the application of these procedures across a country. It is also important to ensure clarification of jurisdiction for both granting rights of way and settling disputes and co-ordination among the public authorities involved.

• To develop a reasonable system of compensation for access to and use of municipal public rights of way. Costs incurred by the municipality related to the associated civil works must be covered, but fees for civil works licenses should be limited to avoid discouraging investment. Benchmarking with similar successful countries can provide a guide on these maximum fees. Ensuring that operators investing in ducts are subject to a set of obligations for remediation and maintenance of ducts, masts and any other passive infrastructure deployed is also advisable.

• Setting maximum times for obtaining licences (depending on the type of civil work implied) is also important to reduce uncertainty and help operators to schedule their network deployments.

• One-stop shopping procedures for rights of way and related administrative procedures can significantly reduce the administrative burden on operators during the planning phase of network deployment, and ultimately lead to greater coverage. Time savings accrued in the planning phase could also enable operators to realise revenues more quickly and start competition as soon as possible.

• It is also important to provide advice and guidelines to municipalities on right of way management. Even when there is an existing national law harmonising procedures, local administrations play a key role applying the regulation. In many cases, municipalities lack resources and/or knowledge to apply the corresponding procedures. To solve this, clear and concise guides may be prepared by the national authorities, including models for forms, and other key aspects.

• As in any other policy area, regular contacts and seminars with local administrations and operators help to identify aspects for improvements in the regulation of rights of ways as well as to anticipate future needs and bottlenecks.

49. Costa Rica and Canada are two examples of good practices in Right of Way regulation. Costa Rica sets a delimitation of powers among the different public bodies for co-ordinated and expedited approval required for installation or expansion of telecommunication networks in Decree No. 36159-MINAET-S-MEIC-MOPT. Among other issues it includes directives for municipalities, periods and due dates for responding to requests of rights of way. In Canada, the CRTC has wide ranging authority to settle disputes between operators, between operators and municipalities or other public authorities on rights of way and can make recommendations on expropriating property to ensure rights of way through private land. Although operators need to obtain the consent of municipalities to obtain rights of way, the CRTC can intervene and where an operator cannot reach agreement with a municipality, the CRTC can grant permission and set the conditions to access the rights of way.

Passive infrastructure sharing

Passive infrastructure sharing

50. Fostering passive infrastructure sharing is a good policy practice that can significantly reduce initial costs for network deployments, facilitating competition and investment in active network deployments. Additional benefits can also be obtained from the reduction in damage to existing infrastructure during excavation work. Some examples are provided below on fostering passive infrastructure deployment and sharing (Box 7).

• Setting obligations for dominant operators owning ducts, masts, and any other passive infrastructure to share them at regulated prices with alternative operators, even when the passive infrastructure belongs to a parent company (e.g. electricity utility).

• “Dig-once” policies may also be applied, encouraging diverse utilities (gas, electricity, telecommunications, water) to adhere to a common shared planning to dig. This can reduce investments for all parties involved, minimise troubles and inconvenience in the public space and help to better organise deployment and future maintenance.

• When planning new public infrastructures, such as highways, it is usually worth investing also in deploying ducts that could be used by any operator under open access cost-based conditions to deploy their own networks. This is especially useful when there is a lack of backbone or backhaul infrastructure.

• A relevant part of the passive infrastructure deployed by other utilities such as gas, water or electricity companies can also be used for telecommunication services. Utility companies performing civil works that are fully or partly financed by public means could be required to meet reasonable requests from telecommunication companies for civil works coordination in order to deploy high-speed broadband networks. This is for example the case in the European Union, where Directive 2014/61/EU, from May 15 2014, on reducing the costs to deploy high-speed broadband networks addressed these types of obligations.

52. In order to ensure efficient use and sharing of passive infrastructure, access to accurate information for operators on its availability is key. This implies development of IT systems showing geo-referenced information on this infrastructure as well as supporting processes for requesting its use, provision and maintenance. When the passive infrastructure to be shared is from the dominant operator, the implementation of these systems can be part of the obligations imposed on its access. When passive infrastructure to be shared includes also elements provided by other utilities and or other infrastructures, the corresponding project to implement and collect data from different organisations should be managed by the administration. An example of an infrastructure atlas managed and launched at 2012 by the German Regulator can be shown by way of example (Box 8).

53. Building a complete infrastructure atlas including geo-referenced information and processes support is challenging and takes substantial time and resources, not only for the administration, but also for operators and utilities involved in providing data. Some challenging issues in this area are the following: defining formats for the information to be sent by the different actors owning passive infrastructure to ensure that the information can be aggregated in a meaningful way; ensuring that the information to be provided by different actors is up to date and verified; providing functionalities to allow for coordination among actors; restricting access to authorised agents , and ensuring the provisions of geographical and technical data that can be useful for operators intending to use the passive infrastructure. A step-by-step process can be followed to start with simple information and functionalities that can be useful for encouraging infrastructure sharing, incrementally refining functionality and data to be provided.

Network sharing and co-investment

Network sharing and co-investment

54. Network sharing and co-investment strategies are increasingly used by operators to reduce investments and risks associated with network deployment. In the context of mobile services, these strategies have been applied for sharing sites for base stations, including ancillary services such as electricity, masts, antennas, or even network elements (Box 9). In the context of fixed services, ducts and in-building wiring have also been shared among operators.

55. Network sharing and co-investment are especially relevant for alternative operators that could not realistically undertake large scale deployments in the access network on their own, or when the deployment of new networks or technologies require substantial investments that can be shared by several actors In this sense, such agreements can be seen as an opportunity rather than a threat to competition. As noted in Chapter 4, network sharing can be a useful tool to enable governments to achieve the availability of network infrastructure in rural areas or elsewhere given particular circumstances (Box 10) and/or to promote an efficient use of infrastructures or investments.

56. Although co-investment agreements and network sharing can in general be encouraged, especially when there is not a business case for the deployment of several competing infrastructures, these agreements should be monitored. This is because, in certain cases, the conclusion of these agreements may facilitate behaviour conducive to lower the level of competition with respect to fully independent partners (e.g. with parallel networks). In general, agreements for sharing passive infrastructure are less prone to raise competition concerns, as there is a lot of room for differentiation among operators sharing ducts or base station sites. One relevant issue to be monitored is the risk of foreclosure by some operators to others, not allowing them to enter into sharing/co-investment agreements. Competition authorities and communications authorities should monitor and take actions in the case that any sharing/co-investment agreement may raise abuse of market power positions or reduce competition.

Access to essential facilities for alternative operators

Access to essential facilities for alternative operators

57. New players usually face an unbalanced situation when entering the market since rolling out the infrastructure needed to provide services takes a long time to deploy and requires large investments. Historical operators owning access networks, often deployed during a monopoly period, have a privileged position compared to these new entrants, as they can use these essential facilities to leverage their market position, and deter market entry by new actors. Experience around the world shows that these operators (former monopolies or other operators having acquired the infrastructure of the former monopoly) enjoy significant market power in fixed broadband markets. This is due to their control of access to essential facilities and in many cases they are in a position to leverage this market power to foreclosure competition with alternative operators. Access to essential facilities at reasonable prices for alternative operators, not able to deploy their own infrastructure in the short term is very important to foster competition in the short term, and may allow sustainable infrastructure-based competition in the long term.

58. The most important essential facilities are located in the access leg of the networks and typically include ducts and any other passive infrastructure, copper local loops, fibre to the consumer’s premises and bitstream services. Thus, access to essential facilities is a key to fostering competition, and in many cases it is necessary to impose regulatory obligations to operators owning such infrastructure.
59. Promotion of infrastructure-based competition for the long term may imply facilitating service-based competition in the short and medium term. This enables access for alternative operators to essential facilities from dominant operators to allow them to start competing while they build their own infrastructure.

Market analysis and dominance

Market analysis and dominance

60. Regulatory decisions to require access to essential facilities, price regulation and other associated measures are usually based on a market analysis carried out periodically under a pre-defined methodology set in the regulatory framework and publicly available to facilitate regulatory certainty (Box 11). The aim of this market analysis is to identify situations of “dominance” or “significant market power”. Several varying definitions of “dominance” are applied in competition law and ex-ante regulation in different countries, but all of them in some way or another apply the concept of market power high enough to act similar to a monopoly in terms of ability to raise prices and/or reduce quality in order to increase profit independent of other firms in the market or consumer pressure. As addressed below, dominance is not an issue just in relation to market shares, although high market shares usually point to dominance. Other relevant factors focusing on barriers to entry, market performance or economies of scale should also be considered when assessing dominance.

61. When no dominance is demonstrated, that is the market is deemed to be competitive, there is no need to regulate access to essential facilities for alternative operators. If dominance is found, usually regulatory measures must be taken to ensure competition. A careful analysis should be done when setting regulatory measures aimed to solve dominance issues. Regulatory obligations should be proportionate, oriented to solve the key aspects leading to dominance, and are imposed just on the operators having a dominant position (also known as “asymmetric” regulation in contrast to “symmetric” regulation that is applied to all operators in the sector).

62. As defined by the ITU , essential facilities in telecommunication network markets may include public rights of way, support structures such as poles and conduits, local loops, telephone numbers and frequency spectrum. New entrants typically require access to these facilities in order for competition to be feasible. Duplication of these facilities may be either technically difficult, or more often, economically inefficient. Control of essential facilities can give an incumbent numerous advantages over new entrants. For example, an incumbent can use its control over essential facilities to increase competitors’ costs or to discriminate them by providing inferior quality to these essential facilities, hence making competitors’ services less attractive to end-customers. As a response to this competition issue, the essential facilities doctrine (EFD) predicts that the owner of an essential or bottleneck facility should be mandated to provide access to that facility at a reasonable price.

63. The market analysis process is typically divided as follows:

• Market definition: definition of the set of products to be included in the market, as well as the geographical scope. It is based on substitutability among different products (for example cable and fibre broadband services are typically included in the same market) as well as on homogenous conditions for competition in a geographical area (for example, very different competitive situations may be found in rural and urban areas).

• Dominance analysis: based on different aspects such as market shares, control of essential facilities which are difficult to replicate, financial resources, economies of scale and scope, barriers to entry, potential entry, ability to influence prices, and so forth.

• Analysis of potential competition problems that are derived mainly from two situations: vertical leveraging (this applies where a dominant firm seeks to extend its market power from a wholesale market to a vertically related wholesale or retail market, applying tactics such as bundling or cross-subsidies) and horizontal leveraging (this applies where a dominant operator seeks to extend its market power to another market that is not vertically related). Competition problems associated to vertical leveraging are usually related mainly to refusal to deal on or deny access, discriminatory use or withholding of information, delaying tactics, bundling/tying, quality and price discrimination, and application of excessive or predatory prices for certain services.

• Imposition of obligations: When dominance is found, one or more obligations are imposed to the dominant operator/s focusing on areas, which create dominance in the market.

64. Specific good practices in this area should include:

• Making transparent the market analysis methodology to be applied as well as rules for imposing obligations and including them specifically in the regulatory framework. This will allow for regulatory certainty (very relevant to foster investment), as well as to support regulatory obligations if challenged in courts by operators.

• As technology and competition trends evolve, market analysis for each market should be reviewed periodically (ideally, the period between market reviews should be included in the regulatory framework) and obligations for operators must be lifted if no dominance is found in the new analysis, maintained, or adapted if needed. In general, market reviews should be carried out around every three years, depending on the pace of evolution in the corresponding markets and resources available in the communications authority. It is also important to take into consideration that market analysis must be prospective, in the sense that the most relevant issue is not the existing situation, but the future evolution during which the regulatory measures will be in place.

• Experts with good knowledge of competition law, economics and telecommunication markets are needed to carry out market analysis. Additionally, data collection is crucial (powers are needed to request non-public information from operators, and procedures must be implemented to keep confidentiality) and data processing and analysis if needed. This implies that, as covered in Chapter 1, the communications authority must ensure that experts and resources are available to carry out periodic market analysis.

• Declarations of dominant positions should be based on a set of parameters, which also take into account the structure of the market. Relying only on market shares, as is done in some countries in the LAC region may oversimplify dominance analysis, leading to false positives when relatively high market shares are not based on advantages derived from a dominant position, or false negatives, inhibiting regulatory measures that would be needed to foster competition.

• Emerging services should not, in general, be subjected to regulatory obligations, and any dominance analysis should be undertaken once the market is stable enough.

• Geographical segmentation of markets can also be used in order to analyse whether competition exists in a market if it is considered that the competitive situation differs in a significant way in different geographical areas. In some cases, urban areas enjoy a competitive situation with several operators using their own infrastructure, and with none of them exhibiting a dominant position, while in rural areas there may be just one operator having a clear dominant position and which may require regulatory remedies. If this is the case, market analysis can be segmented geographically, adapting obligations according to each situation. When these differences exist, relevant geographical data is needed to take the most adequate decisions. In the same manner as for other regulatory measures, a cost-benefit analysis should be done to ensure that the outcomes are necessary to solve the problem detected.

• Preliminary market analysis must be subject to public consultations, providing an adequate period and procedures for stakeholders’ feedback. This will allow the correction of errors, solve misunderstandings and in general, to increase the robustness of the market analysis. Additionally, many of the issues that may be challenged in Courts can be anticipated and addressed in advance. Once the public consultation is finalised, it is also good practice to include responses to comments in the final market analysis.

Solving competition problems derived from dominance

Solving competition problems derived from dominance

65. When one or several operators are in a dominant position, competition problems may arise, hindering or even deterring competition from alternative operators. One potential problem is vertical leveraging, where the dominant operator uses its market power at the wholesale level to leverage its position at the retail level (this is the case of dominant operators with exclusive access to a network where no other infrastructures are available). Horizontal leveraging may also occur, for example, a dominant position in one service (telephony) can be used to extend dominance to other services (broadband access), via bundling or cross-subsidies. Direct entry deterrence may also take place when access to essential facilities for alternative operators is simply refused. Moreover, in general, other problems typical of monopolistic situations such as exploitative behaviour or allocative inefficiencies may also result.

66. When facing dominance situations, Communication Authorities must impose regulatory obligations aimed to solve the specific competition problem and consistent with the objectives set in the regulatory framework. Good practices for regulatory obligations include:

• The set of potential obligations for dominant operators should be listed in the regulatory framework, in order to provide regulatory certainty to stakeholders (and specially, dominant and alternative operators).

• When selecting the most appropriate and effective remedies, the communications authority must select the least burdensome and simplest to apply in order to avoid imposing high costs that could reduce welfare for consumers, reduce incentives for investments, and make regulatory monitoring and enforcement more complex and uncertain.

• A careful analysis should be undertaken of the implications of the obligations for static efficiency (in general related to short-term reduction of prices for final services) and dynamic efficiency (related in general with incentives for investment, innovation, and long-term sustainability). Static efficiency in the short term must not compromise medium and long term efficiency.

• Any regulatory measure must be imposed with the aim to develop sustainable long-term competition with the future absence of regulation. One of the objectives of regulatory authorities is to avoid the need to regulate in the long term, developing sustainable competition (usually infrastructure-based competition, but not necessarily always if there are enough incentives for infrastructure sharing among actors). This does not mean that complete infrastructure-based competition must be the only focus in the short term. Service-based competition based on use of incumbents’ essential facilities by alternative operators (as for example, local loop unbundling) may be a way to facilitate infrastructure-based competition in the long term as alternative operators invest using revenues obtained from service-based competition to reduce their reliance on competitors’ infrastructure.

• Fostering competition at the retail level usually means that regulatory action should be taken at the wholesale level, avoiding retail price regulation that may protect consumers, but in general does not foster competition. This means that Communication Authorities must look for competition problems at the retail level and impose regulation, if needed, at the wholesale level. If competition problems are found at the retail level, regulatory measures should be in general aimed to ensure access for alternative operators to wholesale inputs, in order to allow them to replicate incumbent’s retail offers and compete in price and quality at the retail level using not only wholesale inputs from the incumbents, but also their own infrastructure.

• The imposition of burdensome obligations to dominant operators or any real pro-competitive regulatory asymmetric measure may be challenged in courts, implying that the regulatory framework must clearly provide adequate powers for the imposition of regulatory obligations.

Regulation at the retail level

Regulation at the retail level

67. Regulatory measures at the retail level are aimed to impose specific obligations on maximum prices (cap prices), approval of tariffs or restrict any behaviour from the dominant operator to encourage competition. As noted, the main regulatory tools to solve dominance problems are in the scope of wholesale services, but it is worth analysing some of the regulatory tools used in the region as well as in OECD countries in other regions.

68. Price cap regulation is in general applied to avoid high charges for customers when the market is not disciplined by competition. It has been applied (and it is still applied in some countries in the LAC region) for fixed and mobile services. Price cap regulation is also applied in certain cases in the context of extending broadband services (refer to Chapter 4) to encourage broadband use by communities with low incomes (refer to Chapter 5 on affordability).

69. Price approval requirements by the Communications Authority are also applied in a small number of countries in the LAC region. In general, this model is cumbersome for both, the operators (who have to wait for regulators’ approval before launching a new offer) and for the regulator, that must ensure a prompt response and devote relevant resources for this offers analysis.

70. There is, however, one context where price approval requirements are a useful tool that is applied in many OECD countries. This is for margin squeeze tests. In those national markets where competition from alternative operators is based on the use of wholesale inputs provided by the dominant operator, there is a risk of anti-completive practices based on margin squeeze for alternative operators. The dominant operator may make offers that cannot be reproduced by alternative operators using wholesale inputs at regulated prices in order to reduce the number of competitors in the long term. When there is a risk of margin squeeze for alternative operators, dominant operators are requested to send their planned offers for approval before making it public (typically one or two months before, to allow for analysis by the Communications Authority). The Communication Authority performs a “margin squeeze test” to check replicability by alternative operators using regulated wholesale inputs applying a publicly available methodology. If the offer is not replicable, the dominant operator is allowed to launch the new retail offer only in the case that they will reduce the price of the wholesale inputs. Otherwise, the offer cannot be launched.

71. The application of margin squeeze tests is a good practice to be considered in dynamic markets with alternative operators intensively using wholesale inputs. It should be considered that its effective application is resource consuming, and sometimes it is complex to forbid the application of low price offers by the dominant operator that, although they may harm competition in the long term, are viewed as attractive by some consumers in the short term.

72. The application of margin squeeze tests is especially advisable to address competition problems derived from the bundling of telecommunication services where there exists a dominant position in the provision of that element for the services of others. Here, alternative operators need to be able to compete offering their own bundles using their own infrastructure combined with regulated inputs from the dominant provider. This is different to predatory prices (selling below costs) that are forbidden by competition law in most countries. When applying margin squeeze tests, it is especially important to adequately select the cost-accounting models to be applied, as well as to get relevant and updated data on actual costs for the operators.

73. By way of example, in 2013 the European Commission adopted Recommendation 2013/466/EU on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment. This recommendation requires European Communication Authorities, to put in place obligations to ensure economic replicability of retail offers of undertakings with significant market power (SMP) and therefore preventing them from engaging in margin squeeze practices. Based on the experience of Communications Authorities BEREC developed a guidance document to provide information on how to conduct the economic replicability test and more generally ex-ante margin squeeze tests in practice

74. Retail price regulation in the context of mobile services is seldom used. Ensuring that there are enough competitors using their own infrastructure (e.g. 3-5 MNOs are the typical number of MNOs in countries with thriving competition) and MVNOs adding competitive pressure is usually enough to allow the market to compete in prices and quality of service. Still, in some countries there may be an issue with on-net/off-net retail price differentiation applied by operators with a high market share. This differentiation is applied with the aim to retain market share discouraging consumers to switch to a new entrant with low market shares, when these new entrants face high costs for termination in the network of the ones with high market shares. As a consequence, on-net/off-net differentiation may harm competition.

75. On-net/off-net differentiation competition problems may be addressed at the wholesale level setting cost-oriented low termination prices making differentiation less profitable and allowing new entrants to set low prices for both on-net and off-net calls. Where the differences between retail prices for on-net and off-net calls by operators with high market shares is high and impacts on competition from new entrants, regulatory action to forbid this practice can be considered.

Regulation at the wholesale level

Regulation at the wholesale level

76. In the OECD area wholesale regulation for essential facilities has been extensively used, and many countries are still applying regulatory measures, following the model of the ladder of investment (Box 12). Tools include using local loop unbundling and bitstream access, and even extending it to fibre unbundling. Other countries have lifted wholesale regulation, relying more on infrastructure competition. For those applying such regulation, there exist a great variety of wholesale access products that can be provided by dominant operators.

77. In many LAC countries there is a clear need to foster competition in the broadband market, ensuring that consumers benefit from lower prices and more investment. Wholesale regulation has been applied in some countries but it has not always been effective due to high wholesale prices, lack of technical detail of reference offers, or strategies applied by dominant operators to render it ineffective.

78. According to the ladder of investment models, the main wholesale access products than are usually regulated are the following:

• Resale is the simplest way to start competition. Reselling is based on commercialisation of complete services provided and operated by the dominant operators. Consequently it does not involve any network investment, or any differentiation by new entrants, except in prices that would depend on commercial agreements (if prices are not regulated) or the price to be defined by the regulator. As resale has a very limited effect on competition and there is no room for differentiation, wholesale regulation is not usually applied, except in certain cases forbidding non-reselling clauses set by operators.

• Bitstream consists of providing broadband access for alternative operators using the access infrastructure of the dominant operator, as well as part of the IP network, delivering the bitstream signal for the alternative operators at central and/or regional points. Depending on the characteristics of the bitstream services considered in the regulation, the alternative operator may have more or less room to differentiate, but still any retail service to be offered must be based on what is provided by the dominant operator. The use of bitstream wholesale access implies some network deployment by the alternative operators, as they must reach the IP connection points of the dominant operators, as well as to interconnect with the Internet. In general, it is not as effective for competition as other wholesale inputs such as copper loop and fibre access unbundling in urban areas where access unbundling is economically feasible for new entrants. However, bitstream can be important for competition in those countries where it is applied in rural and suburban areas. These areas have low economies of density (the investment to reach a switch is too high for a small number of customers). In these cases, where typically there is just one copper access network and often no cable operators, this is the only way to enable competition. Using bitstream access in these areas does also allow alternative operators to complete their coverage and provide services in a wide area or the whole country.

• Local Loop Unbundling (LLU) allows an alternative operator to rent the copper access loop connecting the access switch and the customer’s premises. Local loop unbundling may be full (comprising all services) or shared (where the alternative operator uses part of the frequencies for a set of services and the dominant operator uses the access loop for other services). Contrary to bitstream access, alternative operators must deploy their own network infrastructure for each access switch where local loops are rented, implying more infrastructure deployment and investment, but also more room for differentiated services. Competition based on LLU has been extensively applied in many OECD countries. LLU use is economically feasible in areas where there are a large number of local loops connected to a switch since investment is required to reach the switch and equipment to collect traffic must be co-located in the dominant operator’s premises. In the context of broadband services, LLU can be effective in increasing competition in the range of speeds provided by xDSL. This does however depend on the length of copper loops, as speed and QoS degrades with distance covered. Further information can be shown (Box 13).

• Fibre Unbundling is the evolution of LLU applied in the context of next generation networks based on fibre access. In this case the dominant operator must provide wholesale access to the fibre access connecting the customer with the access switch. Fibre unbundling is not technically feasible under some specific network architectures, and an alternative wholesale product, Virtual Unbundled Local Access (VULA) is considered by regulators in this case to facilitate access for alternative operators. Although fibre unbundling is regulated in many European countries, it is still in its early stages of implementation.

• Leased lines, Ethernet services and high speed bitstream services. These wholesale products are aimed to increase competition in the business market segment. These customers require high speeds, a very good quality of service (including guaranteed speed) as well as connections in several different premises not all of them located in urban areas, but also in foreign countries. In some cases, the market for business services is highly concentrated and just one operator accounts for a very large market share. This usually implies very high prices for business services that in turn increase significantly costs for business operations, especially those involved in the digital economy, discouraging growth. When dominance is detected and barriers to competition are high, establishing obligations to provide wholesale access for leased lines and high speed IP services (as Ethernet services that are more and used as a substitute of leased lines) may be advisable to allow alternative operators to complement their own infrastructure (typically based on fibre access aimed to provide high speed/high quality IP services needed for the business segment) in those areas where the only available infrastructure is the one deployed by the dominant operator.

• Dark fibre wholesale access is typically provided not only by dominant operators, but also by other different actors, as utilities (electricity, water or gas providers) as well as transportation providers, such as railway operators using their own passive infrastructure to deploy fibre for their own use, as well as for other providers. For this reason, dark fibre access is not in general regulated as many different actors may compete to provide these services.

• Passive infrastructure access. As noted in the section about right of ways, passive infrastructure, and especially ducts, is the least replicable infrastructure asset owned by dominant operators. Even when Rights of Ways are well managed by public administrations, deploying ducts is expensive and slow. Any operator having to deploy its own ducts would take a long time to start competing with dominant operators, and deploying access networks with a national footprint would take decades, as was the case for the PSTN. Having this in mind, facilitating access to the dominant operator’s passive infrastructure is fundamental to enable competition with a lower level of investment and less time for deployment. Passive infrastructure sharing allows also for complete differentiation in terms of services provided, as each operator deploys its own network, increasing room for competition. Passive infrastructure wholesale access obligations are usually structured around a reference offer to be prepared by the dominant operator, under the monitoring of the regulatory authority, that includes prices for the different assets to be shared, as well as procedures for provisioning, maintenance, incident management, and so forth, addressing compromises on times and penalties to be paid when conditions for providing the service are not met. Some of the key issues for success are to ensure that alternative operators know where the passive infrastructure assets are located, including geo-referenced locations and capacity available, ensuring non-discrimination compared to self-supply by the dominant operators, as well as capacity management for existing ducts. This usually implies the implementation of a passive infrastructure database accessible on-line by alternative operators.

• Access to submarine cables. The market for submarine trunk connection is in general limited to very few operators, entry barriers are high for new entrants and in many cases, infrastructure competition based on competing submarine cables covering similar routes is not sustainable. In those cases where there are no other alternative infrastructure (as can be the case for islands with just one submarine cable, or continental areas with no fixed backbone alternative infrastructure), cable operators are not only in a dominant position, but also act as a monopoly, leading to high wholesale prices or even refusal to provide wholesale services, impacting also in retail prices for broadband. When this is the case, regulation is needed to enforce access to alternative operators at regulated prices (usually cost-based), and a reference offer must be prepared by the dominant operator.

Which wholesale access products should be accessible for alternative operators

Which wholesale access products should be accessible for alternative operators

79. Each of the wholesale products described in the previous subsection are aimed to cover different needs and have different impacts in competition. In general, they can be combined, provided that prices are set according to characteristics of the corresponding product (for example, local loop unbundling should be less expensive than bitstream access, as it involves less resources from the dominant operator and more investment by the alternative operator). In fact, in many OECD countries and part of the countries of the LAC region, most or all of them are imposed in the national regulation.

80. Bitstream, local loop and fibre unbundling are used to foster competition for fixed broadband access when there is not enough infrastructure based competition (as the competitive pressure exerted by cable operators) and competition is not expected to develop absent these obligations in the medium term. In certain cases, mobile broadband can act as a complete substitute of fixed broadband, and competition from mobile providers in these cases should also be taken into account when designing regulatory measures to impose wholesale access for essential facilities for competition in the broadband market. In any case, in most situations, especially in urban areas with short loops, speeds and quality of service for fixed networks cannot be wholly replicated by mobile infrastructures at present.

81. Bitstream access is used for a quick start of competition with a low level of investment by alternative operators. Typically, many alternative operators begin by using bitstream access, and over time, they evolve to use local loop unbundling, that provides more room for differentiation in areas where local loop unbundling is economically sustainable. However, bitstream access is very relevant to foster competition in rural areas where local loop unbundling may not be profitable for alternative operators.

82. Local loop unbundling is one of the most relevant regulatory tools to foster competition in urban areas for fixed broadband access from alternative operators without their own access infrastructure when dominance exists. Although LLU is complex to implement, it may render good results in terms of competition allowing alternative operators to develop their network and increase competitive pressure for markets where the dominant operator enjoys a very large market share and prices are high. This was the case for Mexico and IFT, the Mexican regulator has introduced this obligation, together with resale and bitstream access in 2015 (Box 14).

83. Passive infrastructure access and especially duct access foster infrastructure based competition where operators competing can deploy their own active network infrastructure, fostering complete differentiation and innovative services based on different network technologies. Duct access is useful not only to foster competition for fixed broadband access, but also to foster competition in mobile broadband. The increased penetration and use of mobile broadband has caused increased growth of the traffic to be handled by base stations. When mobile operators can access to existing ducts, they are renting them to connect base stations to their core networks deploying their own fibres. Additionally, mandating duct sharing for the dominant operator may also reduce the need for civil works and digging, reducing any inconvenience to the public at large. Thus, in general, imposing obligations for duct access fosters infrastructure-based competition, reducing the need for investments, while preserving incentives for innovation.

84. Wholesale access obligations for submarine cables are in general needed when there are no other alternatives for operators to cover the route where the cable is deployed in order to avoid high prices and/or refusal for access that would reduce competition and increase prices at the retail level. However, while wholesale access obligations are important when there is no alternative infrastructure, encouraging (and in some cases funding) alternative infrastructures (other submarine cables, or when possible, fixed backbones) to let competition develop in the long term.

85. Leased lines and high quality IP wholesale products are aimed at introducing competition for business services and should be considered when a dominant position is detected for these services. It is important to note that products, configuration and competition dynamics for the business services markets are usually very different to mass markets, and a specific analysis should be carried out. In any case, high prices and/or low quality for business products are a very relevant issue influencing productivity and ability to compete by businesses in the country.

86. Finally, price regulation for reselling is seldom used, as its influence on competition is very limited, and dark fibre is usually provided by other actors such as utilities that are not subject to telecommunications regulation (dark fibre and network deployments by utilities are addressed in the next chapter).

How to apply wholesale regulation

How to apply wholesale regulation

87. Wholesale regulation is key in fostering competition in markets where one operator accounts for most of the market share, where there is insufficient infrastructure competition and new entrants need to get access to essential facilities, which are not replicable in the short term. This is the case in most of the LAC countries. However, wholesale access is not regulated in many cases, and in others, while at least part of the wholesale products are regulated, the obligations are not effective. This is especially relevant in the context of fixed networks, where access network deployment takes a lot of time and resources. The key wholesale access obligations are focused on facilitating access to bitstream services, local loop unbundling, leased lines and other high quality wholesale products aimed at the business segment, passive infrastructure access and trunk segments based on submarine cables. Regulating wholesale access implies setting prices as well as technical conditions and procedures for access.

88. Wholesale prices for dominant operators are usually set under a cost-based assumption. This means that the regulatory authority must perform a careful analysis of costs involved for the wholesale inputs to be regulated. Regulatory cost-accounting is a complex discipline involving specialised knowledge and extensive data. Additionally, setting too low wholesale prices discourage investments by the dominant operator subject to the obligation, while setting too high regulated prices render the obligation ineffective, as alternative operators would not use these wholesale inputs. The key good practices for setting prices are:

• Experts on regulatory accounting must be involved in price setting for wholesale access. Knowledge and experience in applying different cost models is needed.

• Extensive information on the accounting for the services involved is needed and must be provided by the dominant operator on a regular basis. This information must be audited by a third party and the regulator must also review the key aspects of the information provided by the dominant operator.

• Depending on the information available as well as the context and purpose for the wholesale regulation, different cost models can be applied when performing cost accounting exercises (Box 15).

• One relevant issue when applying cost-models is to select the most adequate modelling technique. Top-down modelling attempts to measure costs starting from the firm’s actual costs as set out in its accounts. This method does not involve detailed network modelling. Instead, a top-down model separates the firm’s assets and costs into service groups, and then adds the extra costs associated with interconnection to arrive at an estimate of LRIC. The bottom-up approach develops the cost model on the basis of the expected demand in terms of subscribers and traffic and sets the network design and estimates the related costs on the basis of a network engineering model. There are advantages and disadvantages of both models (Table 3.1). Selection on the cost model to be applied should take into consideration data available, resources available, as well as impact on competition and investment for both access seekers and access providers.

• Regulated prices must be reviewed periodically to adapt to the evolution of costs as well as effects of the wholesale regulation in the evolution of the market. When there is a significant difference between wholesale prices applied at the moment of enacting the regulation and costs obtained from the cost accounting exercise, it can make sense to define a glide path to facilitate a smooth non-disruptive adaptation of wholesale prices from the existing situation to the objective situation. Glide paths prices are defined setting descending prices along time. This has been, for example, the model applied for reduction of termination rates by a relevant number of Member States in the European Union.

• The information on how regulated prices are set must be published (except confidential data from the dominant operator) and be subject to public consultation. This helps improve the methodology, correct errors, and anticipate potential conflicts among operators or judicial challenges by any of the stakeholders involved.

89. Technical specifications and procedures are as relevant as prices. When technical specifications are not well defined, there is room for the dominant operator to hinder access and make it ineffective. Well-defined processes covering all the areas involved are also very important to ensure a prompt and effective access. Related good practices in this area are:

• Impose an obligation on the dominant operator to publish a reference offer where all technical, procedural and price issues are covered. This reference offer should be aligned with the obligations required, address all the issues defined by the regulator, as well approved by the regulator before its publication. A deadline must be set for the publication of the reference offer.

• Taking into account the complexity and the many aspects involved in the contents of a reference offer, it is good practice to have regular meetings with both the dominant and the alternative operators while in the process of elaborating the reference offer in order to ensure that all aspects are well covered and that the reference offer can be used in an effective way by alternative operators.

• The definition of processes and deadlines for each step is key in ensuring that issues are solved in time, do not delay provision of essential facilities and ensure an effective operation (including incident management and maintenance). These processes should also include providing regularly information to the regulator and alternative operators about key performance indicators, as well as penalties for not meeting objectives. In order to make effective these processes, specific IT systems may be needed to automate as much as possible key processes as provisioning or incidence management.

• Non-discrimination is an important issue which needs to be addressed and monitored by the regulator. As a principle, alternative operators must face the same conditions when accessing the dominant operator’s wholesale products as the dominant operator’s retail business faces. Terms for access, prices, and times for provisioning and incidence management should be as similar as possible.

• Ensuring that reference offers are completely effective for competition is a long process that usually takes many years. The experience from OECD countries shows that reference offers are incrementally improved based on experience on its application, as well as on conflict resolutions between the dominant operator and alternative ones using the reference offer. Fortunately, there exist plenty of experiences on preparing and tuning reference offers in many OECD countries. That being said, context conditions differ from country to country, and adaptations to the local context is always needed.

• Benchmarking with other countries, as well as maintaining a network of contacts among regulators in different countries is a very valuable tool to refine reference offers as well as to gain valuable experience. This is the case of BEREC, the Board of European Regulators for Electronic Communications Services, that (among other issues) is a forum for sharing experiences in the context of regulatory action, allowing for a fluid exchange of views and experiences. The LAC area could also benefit by building network of regulatory experts to exchange information.

Functional and structural separation of operators

Functional and structural separation of operators

90. Functional separation, sometimes referred to as operational separation, attempts to achieve non-discriminatory conduct of an operator with significant market power in the provision of access products and in downstream competition. It requires a dominant operator to separate, but not sell, its network infrastructure (or wholesale services) from its retail services division. The key feature of functional separation models is that the network provider is required to operate at arm’s length from downstream service operators providing competitors and the incumbent’s own retail operations with non-discriminatory equivalent services.

91. Structural separation goes further than functional separation. It requires the separation of a vertically integrated firm not only operationally but also in terms of ownership, into: a company owning the local access network, providing wholesale access (the network operator); and the rest of the company that provides retail services. The separation of ownership is intended to eliminate the incumbent’s incentives to discriminate.

92. Functional and structural separation is complex to implement and can substantially effect the structure of the dominant operator. For this reason, both should be considered as a last resort regulatory measure to be applied only when the rest of the regulatory measures available are not sufficient nor effective to solve the competition problem in a determined market and after a careful impact analysis shows that benefits to be obtained are greater than costs and when wholesale access regulation is considered as insufficient. Although functional and structural separation in the telecommunication sector have not been applied in the majority of OECD countries, there are some existing experiences in the OECD area that can be used as a reference and the recommendation of the OECD council concerning structural separation in regulated industries can also be used as a general reference on issues to take into account (OECD 2011b).

State-owned operators

State-owned operators

14. Although most countries in the LAC region have liberalised telecommunication markets and, in general, operators are privately owned, there are some state-owned operators in certain countries. Publicly-owned operators have traditionally taken strategic decisions on investment, prices, coverage and innovation based on very different drivers than private operators, leading in some cases to budgetary issues and potential conflicts among commercial and public policy objectives. At the same time, these state-owned operators, when operating in competition with the private sector, should also compete on an equal footing. This situation can be challenging for both, the policy maker and the state-owned operators.

15. Good practice in this area should be based on several key aspects:

• Both private and state-owned operators must be subject to the same regulatory framework and when possible there should not be special exemptions for state-owned operators (for example, exemptions on fees to be paid or automatic granting of licenses or contracts). However, it may be necessary to impose asymmetric regulation on a state-owned operator (usually the incumbent operator) because it is found to be dominant in one or more markets, just as for private-owned operators when they are in a dominant position. Universal service obligations are usually imposed only on a dominant operator (sometimes state-owned) in that it has the most extensive infrastructure.

• State-owned operators should have the flexibility needed to compete with the private sector. For practical purposes, they should be subject to similar conditions for contracting services or budgeting and financing network deployments and launching new services . A careful review may be needed to shift the setting of specific social objectives from the state-owned regulator to the scope of the governmental action, to avoid conflicts and promote healthy competition. For example, network deployments in rural areas where there are not enough returns to cover investment, but where action is needed to ensure access, should be funded by different sources than the public operator revenues, and tenders and conditions for deployment and access should not favour or penalised public-owned operators. Chapter 4 addresses in more detail the role of publicly owned operators in the implementation of broadband extension plans.

• It is very important to ensure the independence of the communications authority as well as separation of powers between ministerial agencies in charge of policy making and ministerial agencies in charge of controlling state participation in the operator.
16. Applying in practice these recommendations is challenging and politically complex, and is one reason why in OECD countries state-owned operators have been privatised.

Summing up

Summing up

93. Although significant advances have been made in terms of competition in the LAC region over the last few years, in general there is insufficient competition, and a need for regulatory measures to foster entry and investment by new operators, as well as to encourage price competition and innovation.

94. Good practices to foster competition in both fixed and mobile broadband markets include:

• Improved authorisation and licensing processes for new entrants which in many countries are still burdensome. Licensing processes should be faster, simpler and fees for registration should be as low as possible, aimed to cover associated costs, following when possible a registration based authorisation process not linked or specific to any service.

• Foreign investment restrictions in the broadband access market, where they exist, should be lifted to maximise funding of networks and service deployment needed in the area, as well as to foster competition. Most of the LAC countries do not apply restrictions to foreign investment.

• In order to ensure a level playing field, state-owned operators should be regulated and operate under similar rules and regulations as private operators as possible. The administrative body responsible for overseeing the ownership of state-owned operators should be separated from policy making administrative bodies

• Interconnection prices for fixed and mobile voice are still high in a number of LAC countries leading to on-net/off-net differentiation, raising prices for voice services and limiting competition by small operators and new entrants. As broadband services are usually sold together with voice services, this also effects broadband competition. Ensuring that interconnection prices are public and cost-oriented and in line with prices paid in other regions where there is a thriving competition is good practice. At the same time, ensuring rapid and efficient number portability procedures in both fixed and mobile services is critical to facilitate switching by consumers and to develop competition. Those countries that have still not implemented number portability, should prioritise this issue.

• The prices for internet interconnection are in general very high in the region resulting in high retail prices for broadband access. Regulators should encourage IXP deployment, development of local data centers, foster backbone deployment (see Chapter 7 on regional integration), ensure Internet openness (see Chapter 6) and monitor prices for internet interconnection.

• Regulatory authorities should as a general rule refrain from regulating emerging services too early except where justified such as for consumer protection.

• Customer retention practices must be monitored and if periods for customer retention are too long, regulatory measures can be taken to limit the lock-in period and set conditions for customer retention thus helping to improve competition.

• Network sharing and co-investment should be encouraged, in general, by regulators and any administrative barrier for co-investment should be lifted as this can significantly reduce investment needed to provide services. Regulators should however monitor network sharing and co-investment agreements and set conditions when needed to prevent undesirable negative impacts on competition.

• Rights of way are an important area where national administrations and regulatory authorities can take measures to reduce barriers to entry. National harmonising administrative procedures, setting rules for quick and reasonable fees, one-stop-shopping procedures, as well as guidelines for municipalities are all important to ensure that operators do not face high administrative barriers to deploy networks.

95. In the context of mobile broadband, which can play an increasingly key role in the region for network expansion and competition for broadband services, competition can also be fostered by:

• Auctioning more spectrum for broadband mobile access, encouraging new entry in the market (see Chapter 2 on spectrum management).

• Reviewing the regulatory framework to ensure that MVNOs have no regulatory barriers to enter the market, and if needed, impose regulatory obligations to MNOs to facilitate wholesale access for MVNOs.

• Imposing obligations for national roaming access when needed to facilitate competition from new entrants while they are deploying their network.

• SIM lock-in practices should be monitored and regulation may be applied to ensure SIM unlocking for customers under reasonable circumstances e.g. when the terminal has been completely paid for.

96. In the context of fixed broadband, competition can also be fostered by ensuring that in-house building wiring is not a barrier for competition, regulating existing in-house building wiring sharing, as well as enacting regulation to ensure an adequate passive infrastructure in new buildings configured to accommodate several competing in-building wires.

97. Dominance is a key factor preventing competition since dominant operators are in a position to set high prices, hamper or prevent entry by new actors. Taking this into account, analysis of dominance in relevant markets must be performed regularly since it provides the evidence-base to apply regulatory measures to dominant operators aimed to facilitate entry of new market actors. Good practices in this line include:

• Performing dominance market analysis under a regular basis (each 2-4 years) using recent data collected from operators, and applying sound methodologies that should address not only market shares, but also other structural parameters in the market. A preliminary market analysis must be subject to public consultation

• Operators must have clear powers set in the regulatory framework to impose regulatory measures derived from market analysis. These regulatory measures should be justified, be adequate to address the competition problems, and should be the least burdensome possible.

98. In general, the regulatory measures applied should be focused on the wholesale market and aimed to facilitating access of alternative operators to essential facilities. Bitstream, local loop unbundling, fibre unbundling, duct access, trunk services supported by submarine cables and wholesale access to leased lines are the typical wholesale access measures to be considered.

99. Setting cost-based maximum prices for wholesale access and ensuring that an adequate and effective reference offer is prepared by the dominant operators are key issues to ensure success and create competition. The extensive experience in OECD countries can be used to address these issues

NOTES

In 2012, the Peruvian government published the Law No. 29904, (Ley de Promoción de Banda Ancha y Construcción de la Red Dorsal Nacional de Fibra Óptica). The law states that telecommunications companies have the right to access and use the infrastructure of electricity and hydrocarbons companies. Access cannot be denied unless it threatens the continuity of these services. For details see: https://www.osiptel.gob.pe/repositorioaps/data/1/1/1/PAR/ley-29904-promocion-banda-ancha-rdnfo/ds014-2013-mtc.pdf

See, for example the Ley 8660 de Fortalecimiento y Modernización de las Entidades Públicas del Sector Telecomunicaciones, enacted by the Costa Rica Regulator, SUTEL, aimed to set a more flexible framework for the public telecommunication operator, ICE (https://sutel.go.cr/sites/default/files/normativas/fortalecimiento_y_modernizacion_de_las_entidades_publicas.pdf

It may not always be necessary to regulate interconnection prices in an asymmetric situation if compensation charges are reciprocal. If that is the case and one party tries to charge more than its cost, it faces the problem that traffic flows may reverse and it will end up being the net payer. This is what happened in the United States in the 1990s. Some incumbents set their reciprocal compensation rates too high, and instead of receiving money, they had to pay it out as new entrants promptly set up modem banks to receive dial-up Internet access calls from incumbent customers. That being said, cost may differ among the incumbent and new entrants, and a reciprocal rate model, may not be fair. Adding to that, high reciprocal rates may harm competition from alternative providers in the context of fixed and mobile telephony.

Actual prices must remain below the caps, which are fixed at the same level as the termination rates (for voice and SMS), and national data roaming may not be price above USD 1.38 cents (COP 25.63)/MB in 2013, USD 1 cent (COP 19.36)/MB in in 2014 and USD 0.68 cents (COP 13.09)/MB from 2015 on.

Public unrestricted access to all information on passive infrastructure may be not advisable as this may be considered as sensible information for security reasons and in that case, controlling and granting limited access to specific persons or companies in the need to use the information may be advisable.

http://en.wikipedia.org/wiki/Base_transceiver_station, “BTS is also referred to as the radio base station (RBS), node B (in 3G Networks) or, simply, the base station (BS). For discussion of the LTE standard the abbreviation eNB for evolved node B is widely used”.

The exact construction of the arrangement can resemble business process outsourcing, financial lease, ownership and sub-contracting.

Vodafone announces agreement with Cornerstone in 2009. Press commentary noted that the prior agreement with Orange had not resulted in any significant sharing. http://www.mobiletoday.co.uk/news/industry/7317/New_network_sharing_deal_for_O2_and_Vodafone_sidelines_Orange.aspx

Vodafone has explained the sharing arrangements on its website. http://blog.vodafone.co.uk/2012/11/20/better-coverage-fewer-masts-your-complete-guide-to-our-network-joint-venture/

See http://berec.europa.eu/eng/document_register/subject_matter/berec/regulatory_best_practices/guidelines/4782-berec-guidance-on-the-regulatory-accounting-approach-to-the-economic-replicability-test-ie-ex-antesector-specific-margin-squeeze-tests

See “Recommendation of the OECD council concerning structural separation in regulated industries” (http://www.oecd.org/daf/competition/recommendationconcerningstructuralseparationinregulatedindustries.htm)

REFERENCES

BEREC (2014) BEREC Common Position on geographic aspects of market analysis (definition and remedies), BoR (14) 73. http://berec.europa.eu/eng/document_register/subject_matter/berec/regulatory_best_practices/common_approaches_positions/4439-berec-common-position-on-geographic-aspects-of-market-analysis-definition-and-remediesCRC (2013) Comisión de Regulación de Telecomunicaciones “Resolución 4112 de 2013” http://colombiatic.mintic.gov.co/602/articles-3863_doc_norma.pdfERG (2006) Revised ERG Common Position on the approach to Appropriate remedies in the ECNS regulatory framework. http://pfs.is/upload/files/erg_06_33_remedies_common_position_june_06.pdf (Accessed on February 23rd, 2016)

ANNEX: NUMBER PORTABILITY IMPLEMENTATION IN THE REGION

19. According to information provided by the regulator, mobile number portability will take effect when the new mobile operator enters market in 2016

20. While the rules only ‘require’ porting within the same island, CBL (one of the fixed providers) ports between islands within this timeframe (on their network and if a number is ported from the BTC network to the CBL network).